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Is ‘Made in China’ still an indicator of cheap goods?

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SHANGHAI, China For a long time, goods "Made in China" tended to be cheap. Chinese-made sunglasses, for example, can be bought just about anywhere in the world for less than $10 apiece. But things have been changing since the financial crisis in 2008, and especially since the beginning of this year.

Low labor costs encouraged the inflow of labor-intensive scrap metals, such as electric motors, copper cable and zorba, from the United States. But most Chinese importers of so-called 7th-grade material—the low-grade metal scrap that is separated or dismantled by hand—have begun to complain that they are suffering not only from the volatility of the market but also by rising labor costs.

"Most (workers) would be happy to get 2,000 yuan (about $300) each month before," said a scrap importer in Tianjin Jinghai Ziya Recycling Industrial Park in northeast China. "But now no one will work for you so cheap for such hard and dirty work. You have to pay at least 3,000 yuan ($450) a month. This is a big problem for us under such tough market conditions."

There has been a severe shortage of labor since early this year, helping to push up labor costs. Most of the people who work in China's scrapyards—mainly located in Tianjin, Ningbo and Guangdong—are from other parts of the country, and with living expenses growing due to the high inflation rate this year they would rather go back to their hometowns to live a less-expensive life.

Even if they continue to work in the scrapyards, they are not as cheap as before. Chinese consumer prices have jumped 6.9 percent since last November, fueled largely by increases in food and oil prices, according to figures from the National Bureau of Statistics, putting the inflation rate at its highest level in more than a decade despite the efforts of the central government to restrain an overheated economy. This is quite different from what is happening in developed countries, where high unemployment rates have reduced labor costs in many cases.

Most Chinese scrap buyers were not making much profit, or were even operating at a loss, due to severe market conditions, including price volatility, rising Customs fees at different ports, the banning of mixed loads by Customs officials and other challenges. This drove down their enthusiasm for overseas scrap, and China's purchases dropped accordingly.

"Most workers could find nothing to do in the scrapyards since we bought a lot less this year and there was no sense for them to stay here (any) more, so most just went back to where they came from. This led to a severe shortage of labor in major recycling zones," said a buyer of zorba (shredded aluminum). He said he has to pay at least 4,000 yuan ($600) per month for skilled workers to sort materials, and once labor costs go up it is impossible to bring them down again because everyone is competing to secure whatever labor they can.

China also is buying more "cleaner" scrap metals, such as bare bright and No. 1 copper, from the United States and other countries instead of the traditional labor-intensive lower-grade material. One reason is that "dirty" scrap almost always involves quality disputes between buyers and sellers. For example, the two parties might have different definitions of "small motors," and there is always a dispute over the copper content of copper wire. The other reason is that rising labor costs shrank their margins.

With rising labor costs in China, it is becoming more economical to hire someone in the United States instead. Scrap involving simple hand dismantling tends to stay in the U.S. as jobless Americans look for some work in the scrap business. "We only get paid $7 per hour here in Florida, although we believe you will get paid more, perhaps up to $10, in some northern cities, such as Chicago or New York, where living expenses are much higher," said a man who works part time at a scrapyard in Tampa, Fla. "But even here, lots of people are fighting for such hard and dirty labor of picking and sorting metals in scrapyards."

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